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Broader Public Sector Executive Compensation Act, 2014

ONTARIO REGULATION 304/16

EXECUTIVE COMPENSATION FRAMEWORK

Consolidation Period: From November 1, 2017 to the e-Laws currency date.

Last amendment: 400/17.

Legislative History: 380/16, 187/17, 400/17.

This is the English version of a bilingual regulation.

Application and interpretation

1. (1) The compensation framework set out in this Regulation is established for all designated employers and designated executives.

(2) Subject to subsection (3), the compensation framework shall be effective with respect to a designated employer as of the date the employer first posts a compensation program on its website under subsection 4 (3). O. Reg. 187/17, s. 1 (1).

(3) The requirement of the compensation framework regarding public consultations, set out in paragraph 7 of section 2, shall be effective as of September 6, 2016.

(4) A designated employer shall ensure that the effective date described in subsection (2) that applies to the designated employer is clearly indicated on its website.

(5) In this Regulation,

“non-executive managers” are employees and office holders who exercise managerial functions and who directly report to one or more designated executives; (“gestionnaires intermédiaires”)

“pay year”, in relation to a designated employer, means a period of 365 consecutive days, or if the period includes February 29, 366 consecutive days, in respect of which the employer determines the salary and performance-related pay to be paid to its designated executives. (“année de paie”) O. Reg. 187/17, s. 1 (2); O. Reg. 400/17, s. 1.

Terms of compensation framework

2. The terms of the compensation framework are as follows:

1. The salary and performance-related pay that a designated employer provides for a designated executive position must not exceed the salary and performance-related pay cap for the position or for the class of positions to which the position belongs, as calculated under section 3 and adjusted under section 3.1.

1.1 The total salary and performance-related pay that a designated employer provides to all of its designated executives for a pay year must not exceed the salary and performance-related pay envelope for that pay year for that designated employer, as determined under section 3.2.

2. The salary and performance-related pay caps calculated for a designated employer in respect of its designated executive positions,

i. shall be recalculated under section 3 in the event of significant organizational restructuring, and

ii. may be recalculated under section 3 in respect of one or more designated executive positions at any other time if recalculation is warranted in the circumstances.

2.1 The maximum rate of increase in the salary and performance-related pay envelope determined under section 3.3 for a designated employer,

i. shall be determined when the salary and performance-related pay caps are calculated under section 3 for that designated employer,

ii. shall be re-determined whenever a salary and performance-related pay cap is recalculated under section 3 for the designated employer in respect of one or more designated executive positions or classes of designated executive positions,

iii. shall be re-determined whenever the designated employer provides a designated executive with any additional element of compensation, as allowed under paragraph 5, and

iv. shall not be determined or re-determined at any other time.

3. A designated employer shall not provide the following elements of compensation to a designated executive, subject to any entitlement to the element under the Employment Standards Act, 2000:

i. Payments or other benefits provided in lieu of perquisites.

ii. Signing bonuses.

iii. Retention bonuses.

iv. Cash housing allowances.

v. Insured benefits that are not generally provided to non-executive managers.

vi. Termination payments, including payments in lieu of notice of termination, and severance payments that in total equal more than 24 times the average monthly salary of the designated executive.

vii. Termination or severance payments that are payable in the event of termination for cause.

viii. Paid administrative leave, unless provided to the head of a college or university or another designated executive who is part of or will return to the faculty at a college or university.

ix. Paid administrative leave that accrues at a rate in excess of 10.4 paid weeks per year.

x. Payments in lieu of administrative leave.

4. A designated employer shall not provide an element of compensation, other than salary and performance-related pay, to a designated executive unless the element is also generally provided, in the same manner and relative amount, to non-executive managers.

5. Paragraph 4 does not apply if the element is required for the performance of the designated executive position’s functions or is otherwise required for critical business reasons.

6. A designated employer shall not do any of the following unless it is approved by the board of directors of the designated employer, or, if the designated employer does not have a board of directors, the equivalent governing body or officer of the designated employer:

i. Increase the salary that the designated employer provides to a designated executive.

ii. Provide to a designated executive prorated salary and performance-related pay that exceeds the prorated salary and performance-related pay of the previous holder of the designated executive position.

7. A designated employer shall engage in public consultations in which members of the public have a reasonable opportunity to provide comments on the manner in which the designated employer determines the compensation it may provide to its designated executives in accordance with this framework. O. Reg. 187/17, s. 2.

Salary and performance-related pay cap

3. (1) The salary and performance-related pay cap for a designated executive position or class of designated executive positions shall be calculated by,

(a) selecting eight or more comparator organizations in accordance with subsection (2); and

(b) performing the calculations set out in subsection (4), (5) or (6), as the case may be. O. Reg. 187/17, s. 3.

(2) The selection of comparator organizations shall be in accordance with the following:

1. An organization may be selected as a comparator organization if the following conditions are satisfied:

i. The organization is comparable to the designated employer with respect to three or more of the following factors:

A. The scope of responsibilities of the organization’s executives.

B. The type of operations the organization engages in.

C. The industries within which the organization competes for executives.

D. The size of the organization.

E. The location of the organization.

ii. The organization has at least one executive position that is comparable to the designated executive position or class of designated executive positions.

iii. The selection of the organization is approved under subsection (3).

2. At least one Canadian public sector or broader public sector organization must be selected as a comparator organization.

3. Paragraph 2 does not apply with respect to a designated executive position if,

i. the designated employer operates a nuclear facility as defined in the Nuclear Safety and Control Act (Canada),

ii. it is a requirement of the designated executive position that the designated executive have practical experience in operating, designing, constructing or maintaining a nuclear facility or in supervising the controls of a nuclear reactor in a nuclear facility,

iii. the designated employer has submitted, to the Canadian Nuclear Safety Commission, a description of the designated executive position and the qualifications of the designated executive and the Canadian Nuclear Safety Commission has not notified the designated employer, in writing, that the designated executive is not qualified for the position,

iv. there are no Canadian public sector or broader public sector organizations to which the designated employer can be compared, and

v. subparagraph 5 ii has been complied with and the Minister’s approval, referred to in paragraph 4, has been given.

4. An organization that is not a Canadian public sector or broader public sector organization may be selected as a comparator organization subject to the Minister’s approval. The designated employer may apply for approval in writing.

5. The application referred to in paragraph 4 shall include a business case articulating,

i. the reasons the designated employer cannot be compared solely to Canadian public sector or broader public sector organizations, or

ii. if the designated employer believes that the conditions in subparagraphs 3 i to iv are satisfied, the reasons the condition in subparagraph 3 iv, that there are no Canadian public sector or broader public sector organizations to which the designated employer can be compared, is satisfied. O. Reg. 187/17, s. 3.

(3) The minister whose ministry funds, oversees or otherwise usually deals with the designated employer shall approve, in writing, the selection of comparator organizations unless, in the opinion of the minister, the designated employer failed, in selecting the comparator organizations, to properly apply subparagraph 1 i of subsection (2). O. Reg. 187/17, s. 3.

(4) If all of the comparator organizations selected under subsection (2) are Canadian public sector or broader public sector organizations, the salary and performance-related pay cap shall be calculated by,

(a) determining the annual salary and performance-related pay that may be paid for the comparator organizations’ executive positions that are comparable to the designated executive position or class of designated executive positions;

(b) selecting a percentile that is no greater than the 50th percentile of the amounts determined under clause (a); and

(c) determining the amount that is at the percentile selected under clause (b). O. Reg. 187/17, s. 3.

(5) If some but not all of the comparator organizations selected under subsection (2) are Canadian public sector or broader public sector organizations, the salary and performance-related pay cap shall be calculated by,

(a) for comparator organizations that are Canadian public sector or broader public sector organizations, determining the annual salary and performance-related pay that may be paid for the comparator organizations’ executive positions that are comparable to the designated executive position or class of designated executive positions;

(b) selecting a percentile that is no greater than the 50th percentile of the amounts determined under clause (a);

(c) determining the amount that is at the percentile selected under clause (b);

(d) performing the same calculations required under clauses (a), (b) and (c) for comparator organizations that are not Canadian public sector or broader public sector organizations;

(e) multiplying the amount determined under clause (c) by at least 50 but less than 100 per cent;

(f) multiplying the amount determined under clause (d) by a percentage equal to 100 less the percentage applied under clause (e); and

(g) adding the amounts determined under clauses (e) and (f). O. Reg. 187/17, s. 3.

(6) If none of the comparator organizations selected under subsection (2) are Canadian public sector or broader public sector organizations, the salary and performance-related pay cap shall be calculated by,

(a) determining the annual salary and performance-related pay that may be paid for the comparator organizations’ executive positions that are comparable to the designated executive position or class of designated executive positions;

(b) selecting a percentile that is no greater than the 50th percentile of the amounts determined under clause (a); and

(c) determining the amount that is at the percentile selected under clause (b). O. Reg. 187/17, s. 3.

Adjustments to the salary and performance-related pay cap

3.1 (1) Once per pay year, a designated employer may increase the salary and performance-related pay cap for a designated executive position or class of designated executive positions by a rate that does not exceed the lesser of the following:

1. The average rate of increase in salary and performance-related pay of the designated employer’s non-executive managers for the most recent one-year period in respect of which the employer determined the salary and performance-related pay to be paid to the non-executive managers.

2. The public sector wage settlement trend in Ontario, which may be referred to as the public sector (provincial) wage settlement trend, as set out in the Budget, the Economic Outlook and Fiscal Review or the public documents of the Crown in right of Ontario, the Cabinet, the Treasury Board or the Management Board of Cabinet. O. Reg. 187/17, s. 3.

(2) A designated employer shall not increase the salary and performance-related pay cap for a designated executive position or class of designated executive positions within one year after the salary and performance-related pay cap for that position or class of positions is calculated or recalculated under section 3. O. Reg. 187/17, s. 3.

Salary and performance-related pay envelope

3.2 (1) A designated employer shall determine its salary and performance-related pay envelope for a pay year as follows, subject to any proration under subsection (3):

P + (P × R)

in which,

“P” is the salary and performance-related pay envelope for the previous pay year for the designated employer, as it was prorated under subsection (3), and

  “R” is a rate of increase determined by the designated employer that does not exceed the maximum rate of increase in the salary and performance-related pay envelope, as determined under section 3.3.

O. Reg. 400/17, s. 2.

(2) A designated employer shall not determine a salary and performance-related pay envelope within one year after the last time it determined a salary and performance-related pay envelope under this section. O. Reg. 400/17, s. 2.

(2.1) For the first pay year that a salary and performance-related pay envelope is determined under this section, the salary and performance-related pay envelope for the previous pay year for the designated employer is determined as follows:

1. Determine whether the designated employer’s terms of employment for its designated executives for the previous pay year provided for a limit on the total amount of performance-related pay that the designated employer’s designated executives were eligible to receive. The previous pay year limit may be a single amount, may be determined by adding up the limits that applied with respect to each designated executive position or may be determined in some other manner.

2. If there was a previous pay year limit described in paragraph 1, take the amount determined as follows, adjusted in accordance with paragraph 4:

S + MAXPRP

in which,

“S” is the total amount of salary that the designated employer’s designated executives received in the previous pay year; and

“MAXPRP” is the maximum amount of performance-related pay that the designated employer’s designated executives could have received in the previous pay year; if the terms of employment expressed this amount, in whole or in part, in relation to salaries, it is determined based on the salaries actually received — for example, if each designated executive was eligible to receive up to a specified percentage of their salary as performance-related pay, the maximum amount of performance-related pay is determined by totalling the amounts that are determined by, for each designated executive, multiplying the salary the designated executive actually received by the maximum percentage specified for that designated executive.

3. If there was not a previous pay year limit described in paragraph 1, take the total amount of salary and performance-related pay that the designated employer’s designated executives received in the previous pay year, adjusted in accordance with paragraph 4.

4. The adjustment referred to in paragraphs 2 and 3 is the following:

i. Annualize the amounts attributable to positions that were vacant for part of the previous pay year.

ii. Subtract the amounts attributable to positions that were eliminated in the previous pay year. O. Reg. 400/17, s. 2.

(3) The salary and performance-related pay envelope is prorated if, during the pay year,

(a) a designated executive position is created;

(b) a person is hired into a designated executive position;

(c) a designated executive position becomes vacant; or

(d) a designated executive position is eliminated. O. Reg. 400/17, s. 2.

(4) The prorated amount under subsection (3) shall be determined by the board of directors of the designated employer, or, if the designated employer does not have a board of directors, the equivalent governing body or officer of the designated employer. O. Reg. 187/17, s. 3.

Maximum rate of increase in the salary and performance-related pay envelope

3.3 (1) A designated employer shall determine, subject to approval under subsection (2), a single maximum rate of increase in the salary and performance-related pay envelope that shall apply to all pay years, by taking into account the following factors and only the following factors:

1. The financial priorities and the compensation priorities of the Government of Ontario, as indicated in the Speech from the Throne, the Budget, the Economic Outlook and Fiscal Review, and the public documents of the Crown in right of Ontario, the Cabinet, the Treasury Board and the Management Board of Cabinet.

2. Recent executive compensation trends in the part of the Canadian public sector and broader public sector that is in the industry within which the designated employer competes for executives.

3. A comparison between the percentage of the designated employer’s operating budget that is used for executive salary and performance-related pay and the percentages of the operating budgets of the designated employer’s comparator organizations under section 3 that are used for executive salary and performance-related pay.

4. The effect on attracting talent to the designated employer’s executive positions, and retaining talent in the designated employer’s executive positions, of the difference between the salary and performance-related pay range for those positions and the salary and performance-related pay ranges for the employees or office holders who directly report to the holders of those positions.

5. Any significant expansion in the operations of the designated employer that is not the result of a significant organizational restructuring. O. Reg. 187/17, s. 3.

(2) The minister whose ministry funds, oversees or otherwise usually deals with the designated employer shall approve, in writing, a maximum rate of increase in a salary and performance-related pay envelope unless, in the opinion of the minister, the designated employer failed, in determining the maximum rate of increase in the salary and performance-related pay envelope, to properly apply subsection (1). O. Reg. 187/17, s. 3.

Compensation program

4. (1) Every designated employer shall have a written executive compensation program setting out the compensation that may be provided to its designated executives.

(2) The executive compensation program shall conform to the terms of the compensation framework set out in section 2 and shall include the following information:

1. The salary and performance-related pay cap calculated under section 3 for each designated executive position or class of designated executive positions.

2. The comparator organizations and executive positions used in each salary and performance-related pay cap calculation under section 3, together with an explanation of how the comparator organizations used are comparable to the designated employer with respect to the factors mentioned in subparagraph 1 i of subsection 3 (2), and of how the executive positions used are comparable to the designated executive position or class of designated executive positions.

3. The percentile values that were selected for each calculation under clause 3 (4) (b), (5) (b), (5) (d) or (6) (b), as the case may be.

4. The percentage values that were chosen under clauses 3 (5) (e) and (f) for each calculation.

5. The value of “P” used in the calculation of the salary and performance-related pay envelope under subsection 3.2 (1) for the most recent year in which a salary and performance-related pay cap was calculated or recalculated under section 3 for one or more designated executive positions or classes of designated executive positions.

6. The maximum rate of increase in the salary and performance-related pay envelope, as determined under section 3.3.

7. A description of any other element of compensation available to designated executives that is not generally provided, in the same manner and relative amount, to non-executive managers, and the reasons why the element is required.

8. A description of the designated employer’s compensation philosophy, including details regarding,

i. how the compensation program supports the designated employer’s strategic objectives, and

ii. what the compensation program, including its approach to performance-related pay, is designed to reward. O. Reg. 187/17, s. 4 (1); O. Reg. 400/17, s. 3.

(3) The executive compensation program shall be posted on the designated employer’s website, and shall indicate the date on which it was posted.

(4) The designated employer shall update its executive compensation program in accordance with subsection (2) and post the updated compensation program in accordance with subsection (3) if,

(a) a salary and performance-related pay cap is recalculated under section 3 for one or more designated executive positions or classes of designated executive positions; or

(b) the designated employer provides a designated executive with any additional element of compensation, as allowed under paragraph 5 of section 2. O. Reg. 187/17, s. 4 (2).

Review

4.1 (1) The Minister shall complete a review of this Regulation no later than June 7, 2019. O. Reg. 400/17, s. 4.

(2) The review shall evaluate the effectiveness of this Regulation in furthering the purpose of the Act. O. Reg. 400/17, s. 4.

Transition

5. (1) If a designated employer posted an executive compensation program under subsection 4 (3) before the date this section came into force, this regulation, as it read immediately before the date this section came into force, continues to apply, instead of this regulation as it reads after the date this section came into force, to that employer until the employer posts an executive compensation program under section 4 as it reads after the date this section came into force. O. Reg. 187/17, s. 5.

(2) Despite subsection (1), a designated employer may not do anything under this regulation, as it read immediately before the date this section came into force, that would require the employer to update its executive compensation plan under section 4, as it read immediately before the date this section came into force. O. Reg. 187/17, s. 5.

Same

6. (1) If a designated employer did not post an executive compensation program under subsection 4 (3) before the date section 5 came into force and posts an executive compensation program on or before February 28, 2018, the designated employer may, before the day the designated employer posts the executive compensation program, select a date for the purposes of this section. O. Reg. 400/17, s. 5.

(2) The selected date shall be a date during the period that begins on September 1, 2017 and ends on or before February 28, 2018. O. Reg. 400/17, s. 5.

(3) Subject to subsection (2), the selected date may be a date earlier than the day the designated employer posts the executive compensation program. O. Reg. 400/17, s. 5.

(4) If the selected date is in the pay year immediately preceding the pay year in which the executive compensation program is posted, all of the following rules apply:

1. A notional salary and performance-related pay envelope shall be determined for the pay year immediately preceding the pay year in which the executive compensation program is posted, as if it were determined under section 3.2 on the selected date.

2. A notional prorated increase is determined as follows:

(EN − PN) × (DN ÷ YN)

in which,

“EN” is the notional salary and performance-related pay envelope,

“PN” is the value for item “P” in subsection 3.2 (1) used in the determination of the notional salary and performance-related pay envelope,

“DN” is the number of days in the period that begins on the selected date and ends on the last day of the pay year immediately preceding the pay year in which the executive compensation program is posted, and

“YN” is the number of days in the pay year immediately preceding the pay year in which the executive compensation program is posted.

3. The designated employer may pay its designated executives additional pay for the pay year immediately preceding the pay year in which the executive compensation program is posted, up to the notional prorated increase.

4. The salary and performance-related pay envelope for the pay year in which the executive compensation program is posted is determined under section 3.2 but the value of item “P” in subsection 3.2 (1) is determined as follows:

PN + NPI

in which,

“PN” is the value for item “P” in subsection 3.2 (1) used in the determination of the notional salary and performance-related pay envelope, and

“NPI” is the notional prorated increase.

5. A current prorated increase is determined as follows:

(E − PN) × (D ÷ Y)

in which,

“E” is the salary and performance-related pay envelope for the pay year in which the executive compensation program is posted,

“PN” is the value for item “P” in subsection 3.2 (1) used in the determination of the notional salary and performance-related pay envelope,

“D” is the number of days in the period that begins on the first day of the pay year in which the executive compensation program is posted and ends on the day the executive compensation program is posted, and

“Y” is the number of days in the pay year in which the executive compensation program is posted.

6. The designated employer may pay its designated executives additional pay for the pay year in which the executive compensation program is posted, up to the current prorated increase.

7. The additional pay paid under paragraph 6 counts towards the maximum amount of salary and performance-related pay that the designated employer may pay for that pay year.

8. Despite anything to the contrary in subsection 3.2 (2), the designated employer may,

i. less than one year after the selected date, determine the salary and performance-related pay envelope for the pay year in which the executive compensation program is posted, and

ii. as early as the first day of the pay year following the pay year referred to in subparagraph i, determine the salary and performance-related pay envelope for the pay year following the pay year referred to in subparagraph i.

9. The designated employer shall include the following information in its executive compensation program instead of the information required by paragraph 5 of subsection 4 (2):

i. The value of item “P” in subsection 3.2 (1) used in the determination of the notional salary and performance-related pay envelope.

ii. The pay year in respect of which the value of item “P” referred to in subparagraph i was determined. O. Reg. 400/17, s. 5.

(5) If the selected date is in the same pay year as the pay year in which the executive compensation program is posted, all of the following rules apply:

1. A notional salary and performance-related pay envelope shall be determined for the pay year in which the executive compensation program is posted, as if it were determined under section 3.2 on the selected date.

2. A notional prorated increase is determined as follows:

(EN − PN) × (DN ÷ YN)

in which,

“EN” is the notional salary and performance-related pay envelope,

“PN” is the value for item “P” in subsection 3.2 (1) used in the determination of the notional salary and performance-related pay envelope,

“DN” is the number of days in the period that begins on the selected date and ends on the last day of the pay year in which the executive compensation program is posted, and

“YN” is the number of days in the pay year in which the executive compensation program is posted.

3. The salary and performance-related pay envelope for the pay year in which the executive compensation program is posted is not determined under section 3.2 but is determined as follows:

PN + NPI

in which,

“PN” is the value for item “P” in subsection 3.2 (1) used in the determination of the notional salary and performance-related pay envelope, and

“NPI” is the notional prorated increase.

4. Despite subsection 3.2 (2), the designated employer may, as early as the first day of the pay year following the pay year referred to in paragraph 3, determine the salary and performance-related pay envelope for the pay year following the pay year referred to in paragraph 3. O. Reg. 400/17, s. 5.

 

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